Death of a C-Store

Have you noticed all the closed convenience stores that sell gas? Tons!

Three basic things have killed c-stores in the last couple years.

First, everyone thinks the high gas prices means high profits for the store. Actually the reverse is true. Gasoline is mandated that the market up must be 6 cents a gallon. With gas wars, etc, whether gas id $150 or $3.50, the station makes about 6 cents. Actually the government does much better. Fuel taxes are based per gallon. The ethanol additives ensure less mileage, hence you buy more and more taxes are collected. At $1.50 a galloon, almost a third is state and federal tax. Higher in different states, and super high in the Chicago area where 11% county sales tax is also added.

So run the math. A store makes 6 cents per gallon. Credit card companies charge merchants about 2% of the sale price for processing. If gas is at $2/gallon, the credit card company gets 4 cents and the store keeps 2 cents per gallon. When gas was near $4/gallon the math worked out that the credit card company got 8 cents per gallon and the store lost 2 cents per gallon.

Secondly, pay at the pump stopped people from going into the store to purchase convenience items that have a healthy mark up. Notice today all the advertising at the pump or coupons that drive you into the store. The stores know that if you come into the store to pay, you may also purchase something that they make more money on than just 2 cents.

So credit cards changed the paying habits of the customers thus reducing in store sales of grocery items where the profit is and at the same time cost them more in processing charges than they were making on gas.

As c-stores were on the ropes, the SBA loan requirements changed and hit like a hard right to the jaw. The SBA has stated that they will no longer guarantee loans made to c-stores with gas due to the high failure rate and environment issues associated with in ground gas tanks. No financing to build, buy existing or refinance a ballooning loan.

I believe what we are seeing now is a contraction in the market and control shifting to a few brands like BP, Shell, Holiday, Kwik Trip, etc. with their own gas distribution, marketing at the pump, coupons that bring you into the store where you hopefully buy profitable items, car washes which are very profitable, maybe a DQ or Subway inside the store, and other services and products.

Remember, capitalism is creative destruction. You are witnessing a major shift is c-stores and gas stations and only those who adapt will be around in the future.